HSBC cautious on Indian mart
■ Downgrades India’s rating to underweight
Close on the heels of foreign investors exiting Indian stock market, global banking major HSBC on Wednesday downgraded its outlook of Indian shares to “underweight” from “overweight”.
Explaining its rationale for the downgrade, the bank said Indian markets were over-owned at a time when earnings were expected to slow and the scope of interest rate cuts were diminishing.
This downgrade is the first by a major foreign bank since Indian shares began a rally in 2014 that culminated with the Nifty and Sensex indexes hitting record highs in early March.
However, some of the shine has come off Indian markets over the past few weeks as anger over minimum alternate tax claims has pummeled sentiment at a time of rising volatility in global markets.
Although HSBC did not refer directly to reforms, it recommended investors cut their positions in India.
During this calendar year, Indian markets have under-performed their global peers due to stretched valuations, delay in reforms, controversies surrounding the levy of MAT and muted corporate earnings. In the last 16 sessions, foreign investors have sold nearly $2.2 billion worth of shares.
$2.2b worth Indian shares have been sold by FIIs in the last 16 sessions.
REASONS FOR SELLOFF
Foreign investors’ anger over minimum alternate tax, lower than expected corporate profits, slow pace of economic reforms, rising volatility in global markets.
RATE CUT HOPE PEPS UP SENSEX
The equity markets bounced back on Wednesday amidst high bout of volatility as poor growth in India’s industrial production (IIP) during March and a sharp fall in retail inflation in April fueled hopes about a rate cut by the RBI at its forthcoming policy meet.
The Sensex climbed 373.62 points to end the trading session at 27,251 while the Nifty closed at 8,235, gaining 108.50. The rally was led by interest rate sensitive banking and auto sector stocks.
“The global markets traded in the positive territory following a better than expected domestic growth registered by France and Italy,” said Alex Mathews of Geojit BNP Paribas Financial Services.
INDIA REMAINS ONE OF THE MOST OVER-OWNED MARKETS IN ASIA, BUT EARNINGS GROWTH IS SLOWING AND THERE IS LITTLE ROOM FOR FURTHER RATE CUTS. — HSBC